The demand of locally assembled computers has diminished as over 65 per cent of the buyers go for the used imported computers which are available at a price of Rs 8000 against Rs 13,000 of the locally assembled computer of similar specifications.
The market sources told Business Recorder that despite the zero-rated facility on the import of branded new computers, the demand for used imported computers is significantly higher than the new ones. The rising demand for the used computers, laptops and computer-related parts in the local market has always remained a main source of temptation for the importers to indulge in malpractice in connivance with the Customs officials, the sources added.
On the contrary, the assemblers have accounted the levy of general sales tax for declining demand of locally assembled computers. According to them, the government in view of the importance of the emerging IT industry in the country, had taken an appropriate and wise decision to place the IT hardware import at zero rate of Customs duty in 1999.
The zero rate facility was withdrawn and 15 per cent general sales tax was imposed on the import of laptops, computers, servers and computer-related parts while some items including monitors and printers were put under the 5 per cent duty structure in the federal budget 2005.
The custom tariff was zero percent on all computer hardware, PC, notebooks, severs and parts before June 2005 and the importers had to bear only six percent cost on account of withholding, provincial and other taxes on such items. Five per cent Custom duty was imposed on monitors and printers while other peripherals and parts were left at zero duty structure.
The six-percent tax including 3.5 per cent withholding was reduced to one-percent income tax and 15-percent GST was imposed on all computer parts, assembled PCs and related items. After paying the duty and taxes it was not treated as final discharge and was open for audit.
The computer hardware industry was growing at steady 20 per cent growth in Asia Pacific, which was the third highest growth in the region after China and India. Since the government imposed 15 per cent GST on computer hardware, the growth declined to 17 per cent in 2006.
The local assemblers claimed that smuggling of notebooks, RAM, CPU and hard drives was started after the imposition of general sales tax, which now contributes to 30 per cent of the total industry size, thus causing a loss of millions of dollars to the national exchequer.
In the budget proposals submitted through the Lahore Chamber of Commerce and Industry (LCCI), the assemblers, quoting FBR, said the import of computer hardware items have increased after imposition of sales tax. This is only true for the imports of international brands and second hand used PC share. The total PC market size of computer hardware was 900,000 PC's till December 2006. The size of imports increased and the PC market size grew to 1,050,000 PC till December 2007.
The size PC market at the end of December 2008 was 1,200,000 PCs. If we take into account the data of imports and the PC market size of 1,200,000, almost 60 percent of this number constitutes of second hand and used PCs. This leaves 600,000 New PCs, more than 60 percent today constitutes of international assembled PC being imported in the country.
This leaves us with only 240,000 locally assembled PCs in the country. It is pertinent to mention that prior to levy of 15 per cent GST in 2005, the local industry had a share of 300,000 PCs in a market of 900,000 PCs. The increase in imports of international brands is because of heavy under invoicing that effect overall revenue collection and this is how they have reduced the prices gap with the local industry.
Another factor that has resulted in increased prices of computers is the high interest rates of computers purchased under consumer financing which was being looked at as the major tool to increase PC penetration rate in the country and making it affordable for the people to buy new technology on easy instalments has totally been eliminated, as there is no consumer financing taking place in country with regard to new computers.
Despite the visible increase in the computers' sales, the local industry's share is persistently declining, they said and urged the government to withdraw the levy of 15 percent GST on computer hardware industry in the budget 2009-10.
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